Colonial BancGroup Inc., a Montgomery, Ala., regional bank reeling from mounting loan losses, is close to landing a $300 million capital infusion that would transfer majority control to a new investment group and convert Colonial to a thrift, according to people familiar with the matter.
Leading the infusion would be Ocala, Fla.-based mortgage lender Taylor Bean & Whitaker, which already has a thrift charter thanks to its July 2008 acquisition of Platinum Bancshares Inc., a Rolling Meadows, Ill., community-banking company with about $90 million in assets. Taylor Bean is expected to contribute roughly half of the $300 million.
Colonial, with $25.8 billion in assets, was up against a March 31 regulatory deadline to raise its capital ratio or find a new buyer. It is operating under a "memorandum of understanding" with regulators and was promised aid from the U.S. Treasury Department if it could raise $300 million privately. It is unclear if the Treasury will still inject separate capital into Colonial or if it has decided that too much time has passed without action.
Gaining control of Colonial and its new thrift charter would help Taylor Bean win federal clearance for a significant expansion of its deposit-gathering operations, according to a person familiar with the matter. That would provide it with a stable source of low-cost funding, a valuable asset in today's jittery market environment.
Unknown is what would happen to longtime Colonial Chairman and Chief Executive Robert Lowder, the target of analysts and shareholders angry about the company's performance and recent disclosures. The bank lost $880.5 million in 2008, hurt by its exposure to Florida's real-estate collapse. When the bank said on Dec. 2 that it had preliminary approval for as much as $536 million in federal aid, it didn't tell investors it needed to raise $300 million privately to secure the government funds. That disclosure came on Jan. 27.
A Colonial spokeswoman declined to comment, and Mr. Lowder couldn't be reached. Taylor Bean Chairman Lee Farkas couldn't be reached for comment.
The $300 million infusion into Colonial may be greeted as a nascent sign that private investors may finally be willing to pump capital into the beleaguered banking industry. That has been a top goal of the Obama administration and banking regulators, who hope that increasing confidence among private investors will help defuse the industry's crisis.
The deal would also put Colonial in the unique situation of swapping its charter two times in a span of months, an extremely unusual occurrence.
Less than a year ago, Colonial abandoned its charter with the Office of the Comptroller of the Currency, which was cracking down on banks like Colonial that had heavy exposure to construction and commercial real-estate loans. It adopted a new charter with Alabama's state banking regulators, which was widely interpreted as a move to get federal officials off Colonial's back. Colonial executives at the time denied any such motivations, arguing that the state charter would save money for Colonial and would afford them easier access to their primary regulator.
But the switch infuriated the comptroller's office, a fact that came back to haunt Colonial last fall. When Colonial applied for government rescue funds in November, it quickly received the blessing of the Alabama regulators and its local Federal Deposit Insurance Corp. examiners. But when the application arrived in Washington, it encountered trouble. Officials with the OCC argued that Colonial didn't deserve money from the Troubled Asset Relief Program because of its risky loan portfolio, according to people familiar with the matter.
With the bank's application in jeopardy, Alabama officials pleaded for Treasury to aid the big bank. The ultimate outcome was a compromise in which Colonial would get taxpayer money if it could first raise private funds.
Colonial's survival is viewed as crucial, given its status as one of the country's top warehouse lenders; brokers and mortgage banks count on the company to be a conduit for mortgages.